As increasing numbers of individuals enter treatment for substance abuse and dependence, an era of cost containment challenges the cost effectiveness of traditional inpatient care. Clinical studies suggest that outpatient treatment for alcohol abuse and dependence may be as effective as inpatient treatment and is generally much less expensive, but few studies have included more severe patients or studied less costly non- hospital-based residential treatments. Further, it remains costly to provide chemical dependency treatment services even in the outpatient setting. In response to the challenge of providing cost effective wraparound services for patients with severe problems and high relapse potential, a large Health Maintenance Organization (Kaiser Permanente) has recently contracted with residential recovery programs to provide a new residential benefit. This study undertakes a controlled, random assignment comparison of 768 patients eligible for the new benefit. Subjects will be assigned to one of two treatment settings--intensive outpatient (19 group sessions per week) or residential recovery (20 group sessions per week)--to enable comparison of two types of treatment available in a "real world" HMO (Kaiser Permanente Southern California) serving a heterogenous population (33 percent women, 22 percent Black, 14 percent Hispanic) reflective of many urban communities. Using an intent-to-treat model, the study considers independent variables including during-treatment service mix/intensity, retention, informal peer helping, and use of aftercare, as well as post- treatment outcome and improvement rates in abstinence, drug use and alcohol consumption, medical and psychiatric problems, and employment, legal and family/social problems. Ethnographic observation will augment the survey data. Since a central goal of both treatments is fostering strong affiliation with groups such as AA/NA/CA, the project will consider variables such as social network support for abstinence and affiliation with 12- step programs; their role in the causal pathway to abstinence will also be assessed. The study will measure patient utilization of health and social services including Kaiser Permanente medical services utilization one year prior to and one year following treatment, and will also compare costs of providing each treatment. The relative cost effectiveness of intensive outpatient and residential recovery under managed care will be analyzed. The study will confirm treatment content and will identify patient characteristics associated with successful treatment outcomes in each setting.